Oil and Gas: A Flawed Prediction?

One of the comments I quite often get at external events is that “The oil and gas industry has only got 20 years”. This doesn’t just come from enthusiastic climate campaigners, but from thoughtful, very well educated people in a number of disciplines related to the climate issue. A report by WWF a few years back took a similar but slightly less aggressive line, through the publication of an energy model forecast which showed that the world could be effectively fossil energy free as early as 2050.

It’s hard for anyone who has worked in this industry to imagine scenarios which see it vanish in a couple of decades, not because of the vested interest that we certainly have, but because of the vast scale, complexity and financial base of the industry itself. It has been built up over a period of 120+ years at a cost in the trillions (in today’s dollars), provides over 80% of primary energy globally, with that demand nearly doubling since 1980 and market share hardly budging. Demand may well double again by the second half of the century.

So why do people think that all this can be replaced in a relatively short space of time? A recent media story provides some insight.

As if often the case with the turn of the year, media outlets like to publish predictions. Once such set that appeared on CNN were by futurist Ray Kurzweil. He is described by CNN as:

. . . . one of the world’s leading inventors, thinkers, and futurists, with a 30-year track record of accurate predictions. Called “the restless genius” by The Wall Street Journal and “the ultimate thinking machine” by Forbes magazine, Kurzweil was selected as one of the top entrepreneurs by Inc. magazine, which described him as the “rightful heir to Thomas Edison.” Ray has written five national best-selling books. He is Director of Engineering at Google.

Kurzweil claims that:

By 2030 solar energy will have the capacity to meet all of our energy needs. If we could capture one part in ten thousand of the sunlight that falls on the Earth we could meet 100% of our energy needs, using this renewable and environmentally friendly source. As we apply new molecular scale technologies to solar panels, the cost per watt is coming down rapidly. Already Deutsche Bank, in a recent report, wrote “The cost of unsubsidized solar power is about the same as the cost of electricity from the grid in India and Italy. By 2014 even more countries will achieve solar ‘grid parity.’” The total number of watts of electricity produced by solar energy is growing exponentially, doubling every two years. It is now less than seven doublings from 100%.

That gives us just 14 years! But maybe not.

Kurzweil has compared the growth of the energy system to the way in which biological systems can grow. With huge amounts of food available, a biological system can continue to double in size on a regular time interval, but the end result is that it will either exhaust the food supply or completely consume its host (also exhausting the food supply), with both outcomes leading to collapse. Economic systems sometimes do this as well, but collapse is almost certain and there have been some spectacular examples over the last few centuries.

The more controlled pathway is one that may well see a burst of growth to establish a presence, followed by a much more regulated expansion limited by resources, finance, intervention, competition and a variety of other real world pressures. This is how energy systems tend to behave – they don’t continue to grow exponentially. Historically there are many examples of rapid early expansion, at least to the point of materiality (typically ~1% of global primary energy), followed by a long period of growth to some level which represents the economic potential of the energy source. Even the first rapid phase takes a generation, with the longer growth phase stretching out over decades.

The chart above was developed by energy modelers in the Shell Scenario team, with their findings published in Nature back in 2009. The application of this type of rule gives a more realistic picture of how solar energy might grow, still very quickly, but not to meet 100% of global energy demand in just 14 years. The “Oceans” scenario, published last year as part of the Shell New Lens Scenarios, shows solar potentially dominating the global energy system by 2100, but at ~40% of primary energy (see below), not 100%. A second reality is that a single homogeneous system with everybody using the same technology for everything is unlikely – at least within this century. The existing legacy is just too big, with many parts of it having a good 50+ years of life ahead and more being built every day.

David Hone serves as the Chief Climate Change Advisor for Royal Dutch Shell. He combines his work with his responsibilities as a board member of the International Emissions Trading Association (IETA), the Centre for Climate and Energy Solutions (C2ES) and the Global Carbon capture and Storage Institute (GCCSI). After graduating as a chemical engineer, Hone started his career as a refinery engineer in Australia during another period of very high oil prices when energy efficiency was paramount. He spent a period in the Netherlands, before returning to Australia to become involved with another side of the oil industry, energy economics and supply. This led to a move to London as an oil trader for Shell followed by a time managing the global trading and chartering of Shell's crude oil tanker fleet. In 2001 he took up his current role and has not looked back since.